Eco402 Assignment 17

EQUILIBRIUM
Equilibrium is a state in which there are no shortages and surpluses; in other words the quantity
demanded is equal to the quantity supplied.
Equilibrium price is the price prevailing at the point of intersection of the demand and supply curves; in
other words, it is the price at which the quantity demanded is equal to the quantity supplied.
Equilibrium quantity is the quantity that clears the market; in other words, it is it is the quantity at which
the quantity demand is equal to the quantity supplied.
ALGEBRAIC REPRESENTATION OF EQUILIBRIUM
If we have following demand and supply function
Qd = 100 – 10 P
Qs = 40 + 20 P
Supply Curve
Quantity (Q)
Price (P) Demand Curve
Qd = Qs

In equilibrium,
Qd = Qs
Therefore,
100 - 10P = 40 + 20P
20P + 10P = 100 - 40
30P = 60
P = 60/30
P = 2
Putting the value of price in any of demand and supply equation,
Q = 100 – 10x2 (or 40 + 20x2)
Q = 100 – 20
Q = 80
The equilibrium price is 2 and the equilibrium quantity is 80

Instructions: Please read the following instructions carefully before preparing the assignment solution:

 For acquiring the relevant knowledge, do not rely only on handouts but watch the course video lectures, which can be downloaded for free from www.youtube.com/vu and also use other reference books.

 For planning your semester activities in an organized manner, you are advised to view schedule of upcoming Assignments, Quizzes and GDBs in the overview tab of the course website on VULMS.

 Write down formula and all relevant steps involved in calculations.  Calculate to the point where calculation is being required. NO need to

write irrelevant material or extra interpretation.  Graphs are very important in Economics course. This assignment will

enhance your skill of drawing graphs. A complete procedure of “How to draw graphs in MS-Word” is uploaded on announcement page of LMS. Get help from that uploaded file to solve your assignment.

 Draw diagram by yourself. Do NOT copy from any source. NO need to write irrelevant material. Properly label the diagram where required. Labeling also contains marks.

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• Use the font style “Times New Roman”/ “Arial” and font size “12”. • It is advised to compose your document in MS-Word. • Use black and blue font colors only.

Solution guidelines:

• Every student will work individually and has to write in the form of an analytical assignment.

• Give the answer according to question.

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